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Agenda for America : a Republican direction for the future /
by Haley Barbour.
imprint
Washington, D.C. : Regnery Pub. ; Lanham, MD : Distributed to the trade by National Book Network, c1996.
description
ix, 318 p. ; 24 cm.
ISBN
0895267217
format(s)
Book
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More Details
imprint
Washington, D.C. : Regnery Pub. ; Lanham, MD : Distributed to the trade by National Book Network, c1996.
isbn
0895267217
catalogue key
1796810
 
Includes bibliographical references and index.
A Look Inside
First Chapter


Chapter One

Taxing and Spending

Do you know that we spend more time figuring out our taxes in the United States of America than we do producing every automobile, every truck, and every van in Detroit, Buffalo, and Ohio and Kentucky and Tennessee and California and throughout America? We spend more time figuring out our taxes than the total time to produce [all] the automobiles and vans in the United States. --Jack Kemp, codirector of Empower America, at a National Policy Forum on "Building a Better Tax Code: Breaking with the Past"

*

AMERICANS PAY TOO MUCH TAX to support too much government. A core objective of our agenda is to provide an alternative to the big-spending, high-taxing, overregulating government that now shackles individuals and families. Excessive and unnecessary government barriers to economic progress and higher living standards must be eliminated or reduced. We need public policies that enhance individual freedom and opportunity, and enable individuals to provide adequately for themselves and their families. To that end, we must also provide an environment congenial to entrepreneurship, innovation, business creation, and growth.

For too long now Washington has attempted to manage our economy with massive government spending programs and huge transfers of wealth engineered through the tax system. We must reduce the tax burden on our families and entrepreneurs so that we can promote economic growth and strengthen our families, which are best equipped to teach our children good citizenship and the habits necessary for economic productivity.

America has always been the land of opportunity. And the basis of economic opportunity has always been growth. When the economy grows, more jobs open up, there is more room for small business entrepreneurs with new ideas, and families' standards of living improve, allowing them to invest in durable goods and/or higher education for their children. With a rapidly growing economy we can provide jobs for everyone willing to work, along with the chance for advancement and upward mobility. All these factors join together to produce a dynamic economy and a society that can be prosperous and at peace with itself.

America is poised to lead the world into a new era of economic growth. Technological innovations that offer enormous promise for greater productivity and more high-paying jobs are coming on-stream at an unprecedented pace. To realize that promise, however, the nation must significantly change its public policies. Existing policies discourage households and businesses from engaging in the very activities on which economic progress crucially depends. Our core objective is to remove government-imposed obstacles to growth. And a major obstacle to this is the federal tax system.

Any real tax reform must replace the existing system with one that is more fair, efficient, simple, and pro-growth. It would tax all income one time, at one rate, with few deductions; grant appropriate allowances for the family; and have no regressive impact on the poor, the elderly, and families with children. As a practical matter, the new tax would be simple, visible, and easy to administer.(1) It would impose lower taxes than today's because tax reform begins with spending controls. Taxes must be limited in the interests of economic growth and progress.

All of our modern experience teaches us that lower, simpler taxes benefit our people and our economy. Most vivid were the courageous tax cuts pushed through by President Reagan in his first year in office, a model for us in 1997 and beyond. After weathering a recession necessary to wring out President Carter's inflationary policy, the 1981 Reagan tax cuts brought America ninety-two months of sustained growth (1982-90), the longest ever in peacetime. The economy grew approximately one-third in real terms. Interest rates and home mortgage rates declined. Contributions to charity increased, manufacturing output rose, and foreign private investment in the United States more than doubled.

At least as important, real, postinflation median family income in this country rose between 1982 and 1990, from $35,419 to $39,086, for an increase of 10.4 percent. Nineteen million new jobs were created between 1982 and 1989,2.4 million in 1989 alone. And 82 percent of these jobs were in higher paying occupations--technical, precision production, managerial, and professional.(2)

The benefits were widely enjoyed. During the 1982-90 period, everyone became more prosperous. The bottom fifth of income earners had an 11 percent increase in income, the next fifth a 9.7 percent increase, the middle fifth a 10.3 percent increase, the next fifth an 11.8 percent increase, and the highest fifth a 17.9 percent increase.

Some would inevitably complain that people with high incomes did even better than other Americans during the prosperous 1980s. But the goal of government should not be to make all people the same. It should be to allow everyone to become better off. And policies of low taxes and fewer regulations did precisely this.

Some believe that the "rich" don't pay their "fair share" of the total tax burden. According to the Joint Economic Committee, in the taxable year 1993, the top 10 percent of the income earners, people who accounted for 39 percent of the nation's adjusted gross income in 1993, paid a disproportionate share--almost 59 percent--of the total individual income tax revenues collected by the federal government. Their effective tax rate was 20 percent of their income. The bottom 50 percent of income earners accounted for almost 15 percent of total adjusted gross income but paid only 4.8 percent of the total individual income tax that year. Their income taxes were 4.3 percent of their income, only slightly more than a fifth of the effective rate paid by the top 10 percent of income earners.

It really is very simple: Lower taxes and less regulation help the poor, along with everyone else; higher taxes and more regulation hurt the poor, along with everyone else. After the 1990 budget deal raised taxes, everyone became worse off. And after President Clinton's retroactive tax hike took effect in 1993, real income dropped a whopping $709, or 1.9 percent, in a single year.

DISTRIBUTION OF INDIVIDUALINCOME TAXES BY INCOME QUINTILE Calendar Year 1995

INCOME INDIVIDUAL TAXES PRESENT LAW QUINTILE1 UNDER EFFECTIVE PRESENT LAW TAX RATE2

Billions Percent Percent Lowest -$7 -1.1% -4.6% Second 2 0.3% 0.4% Third 36 6.0% 4.8% Fourth 94 16.0% 7.9% Highest 464 78.8% 16.0%

TOTAL, ALL TAXPAYERS 588 100% 10.9%

Highest 10% $374 63.6% 18.7% Highest 5% 300 51.0% 21.3% Highest 1% 181 30.8% 26.8%

(Source: Joint Committee on Taxation) Detail may not add to total due to rounding.

1 The income concept used to place tax returns into income categories is adjusted "toss income (AGI) plus: (1) tax-exempt interest, (2) employer contributions for health plans and life insurance, (3) employer share of FICA tax, (4) workers' compensation, (5) nontaxable Social Security benefits, (6) insurance value of Medicare benefits, (7) alternative minimum tax preference items, and (8) excluded income of U.S. citizens living abroad. The quintile breakpoints are $11,190, $21,847, $35,629, and $57,639. The highest 10%, 5%, and 1% breakpoints are $81,276, $106,249, and $219,770. 2 The effective tax is equal to individual income taxes divided by income described in footnote 1.

History shows that rapid economic growth helps all Americans by creating new opportunities. From 1982 to 1987, the number of black-owned firms increased by nearly 38 percent to a total of 425,000. During the same period, Hispanic-owned firms surged by 83 percent, according to the Wall Street Journal. Unfortunately, in 1986 the capital gains tax rate was increased by 65 percent. And, not surprisingly, that huge increase brought us four straight years during which Americans started fewer businesses each year than the year before.

AMERICA'S TAX BURDEN IS TOO HIGH

Taxes on American businesses and families are, quite simply, too high. For example, on long-term capital gains, the United States has the dubious distinction of being the number one taxer in the world. What do these higher taxes mean for America? Less investment and fewer jobs. High capital gains taxes make investing more expensive and, obviously, less attractive. And without investment, companies can't expand or even stay in business (more on this later).

The federal government has been hurting families far too much for far too long--in part through the onerous marriage penalty and in large part through the steady erosion in value of the dependent tax exemption. Where in 1948 a median-income family of four paid only .3 percent of its income in federal taxes, by 1990 that percentage had risen to 9 percent. And the dependent tax exemption was hit the hardest. That exemption fell precipitously in value between 1948 and 1990. Because of inflation and other factors, the exemption today would have to be $7,000 instead of only slightly over $2,000 in order to be worth what it was in 1948. As a percentage of income, the dependent exemption has shrunk to a quarter of its former value.

Regressive tax policies have had a real effect on our families. It is expensive to raise children, particularly if you want to do right by them. Lower taxes would help parents a great deal as they struggle to provide for their children. We have already made progress in this area. The Contract with America's $500 per child tax credit will go far toward correcting Washington's mistreatment of America's families. Lower taxes allow families to invest in the future and in their children's future. Government's attempts to invest in human capital directly, through Washington-based programs, generally backfire because of bureaucratic inertia and the distorting effects of government subsidies. Families, on the other hand, can very effectively invest in the human capital of their children, giving them the appropriate education and training, improving their material conditions, and, in the process, adding to the general economic growth.

The current tax system is strangling America's small businesses, which are the engine of job creation in the U.S. economy.

First, high marginal tax rates disproportionately hurt smaller firms because they tend to file their taxes as individuals rather than corporations. In 1993, President Clinton's tax increase bill--the largest in U.S. history--raised the top marginal tax rate to 39.6 percent.(3) As a result, small businesses today have less incentive to expand their operations, to purchase that additional machine, and to hire that additional worker.

Second, the estate/death tax rates are so high now that many heirs of family-owned businesses must sell the business in order to pay the taxes. The result: lost jobs and fewer family-owned businesses. For instance, in a survey of black-owned enterprises, nearly one-third say their heirs will have to sell the business to pay the estate tax. While the Contract with America/Republican tax cut plans called for significant estate/death tax relief for small businesses, the long-term goal should be the outright repeal of this antifamily businesses tax.

Third, federal payroll taxes are one of the greatest inhibitors of economic expansion and job creation in the small-business sector. A majority of small firms pay more in payroll taxes than in income taxes. Payroll taxes, moreover, are by far the fastest growing federal tax burden on small businesses. Reducing the burden of payroll taxes must be part of any significant federal tax reform effort.

Cutting our punitive capital gains tax will unleash a flood of entrepreneurial capitalism and job opportunities. When we cut the capital gains tax in 1978 and in 1981, investment in new business ventures skyrocketed and the Treasury increased. The Contract with America's capital gains tax cut, it is estimated, will create 722,000 new jobs by the year 2000.(4) This tax cut would lower the cost of capital by 5 percent, thereby inducing investors to increase the capital stock by $2.2 trillion by the year 2000. This larger stock of capital would also increase total GDP cumulatively by almost $1 trillion by the year 2000. And everyone would benefit. While proposals to cut the capital gains tax rates are falsely labeled as tax cuts for the wealthy, well over half of all taxpayers with capital gains in 1992 had adjusted gross incomes of less than $50,000. Over 72 percent had incomes of less than $75,000. Thus middle-class families would benefit directly from capital gains cuts. And everyone would benefit from the spur to investment, incomes, and job creation the tax cuts would bring.

Income Tax Returns with Capital Gains, by Total Income Level, 1992 [GRAPHICS OMITTED]

But we must go further. Below, we examine the current tax system's failure to live up to proper standards for any tax structure: fairness, providing the real cost of government, simplicity, nonintrusiveness.

Fairness

Our present tax system is irreparably broken. Virtually no one believes our tax system is fair. The best way of looking at tax fairness is to call to mind one of the oldest, most basic principles on which this nation was founded. Throughout our history we have insisted that everyone in this society should stand equally before the law. Applying that principle in the field of taxation leads us to a just standard of fairness: If the government is to tax income, everyone should be exposed to the same rate of tax on his or her income.

For one thing, the rewards people receive from participating in the free market economy closely match what each person has contributed to it. Moreover, those rewards are not earned at other people's expense. Thus, after the Reagan tax cuts, according to the National Federation of Independent Business, the number of women-owned businesses nearly doubled (from 2.9 to 5.4 million) during 1982 to 1990, and real earnings for women rose as well. Black and Hispanic unemployment rates declined overall in the 1980s; black employment in managerial and professional occupations rose 46 percent between 1983 and 1991, and similar Hispanic employment rose 84 percent.

Unfortunately, our tax laws ignore these facts of our economic life. Indeed, President Kennedy, over thirty years ago, could have been describing our present system when he said, "An economy hampered with restrictive tax rates will never produce enough revenue to balance the budget, just as it will never produce enough jobs."

Upward-graduated income tax rates, in effect, assert that the more productive we are and the more we contribute to our economic well-being, the more tax we should pay. This though the facts are clear: High marginal tax rates crush economic growth. When tax rates were lowered in 1981, the productivity of American workers rose: the average worker produced $49,600 in goods and services in 1990, the highest level in the world.(5)

Hiding the Cost of Government

The existing system fails to tell the public what it must pay for government services. If we don't know what government costs us, we will ask for more and more. But government services and activities are not free. To provide those services and activities, government takes away resources that would otherwise be available to households to improve their living standards and to businesses to produce needed products and services. In the process, government drives up the cost and reduces the quantity of goods and services in the private sector.

Do you know, as you read this, how much federal income tax you paid last year or are likely to pay this year? Ask your friends how much payroll tax was deducted from their gross wages or salaries last year; ask yourself how much you paid in payroll taxes last year. Does anyone have even a ballpark estimate of what he or she paid in federal excise or corporate taxes last year?

Everyone in a self-governing, self-reliant society should be able to answer these questions in order to decide whether the government they're getting is worth what they're paying. But we can't. And because of that, we get too much government at much too high a cost. This lavish government costs us the valuable products and services we would otherwise have, resulting in a smaller economy that grows more slowly than it could.

We need a tax system that does a vastly better job of telling us what government costs. This is reason enough to scrap the existing system.

Complication and Intrusiveness

One of the acid tests of an acceptable tax system is that it impose the lowest possible costs of compliance, administration, and enforcement. The existing tax system is totally unacceptable on these grounds alone. Every element is extremely complicated, requiring an enormous number of man hours and hundreds of billions of dollars of manpower, machinery, and paper costs.

The complexity of the tax laws inevitably results in harsh and complex rules and regulations that ensure compliance with those laws, and their enforcement in turn generates arbitrary, often cruelly harsh penalties by the tax administrators--the Internal Revenue Service. The history of the contemporary tax system is a laboratory example of how to make tax laws more and more costly to comply with, to administer, and to enforce. Virtually every tax bill enacted in recent years has made the laws more and more complex in order to squeeze out every last dime of taxable income. The consequence has been huge increases in taxpayers' compliance costs and in IRS administration and enforcement personnel. It has also begotten enforcement procedures that ruthlessly invade our property rights; the IRS can and does seize the property of people it says have evaded paying their taxes without first going to court. No government agency should have the power to confiscate property without a finding by a court of violation of the law.

We tend to overlook that we pay for these enormous compliance burdens--over five billion hours spent in computing taxes in one year alone--by giving up products and services that we would otherwise produce. We pay for the complexity of our tax laws through lower living standards today and in the future.

It should be abundantly clear that simplifying the tax laws and reducing compliance costs go far beyond so-called tax reform. Since the adoption of the Sixteenth Amendment to the Constitution, the federal income tax has been reformed and reformed, and things only get worse. The classic case of reform gone wildly astray is the Tax Reform Act of 1986. That legislation simplified compliance only for the several million people it dropped altogether from the income tax rolls; it hugely increased the complexity and compliance costs for virtually all business-income taxpayers and for individual taxpayers who receive income from their savings and investments.

A tax revolution, not mere tax reform, is needed. We must reduce compliance, administration, and enforcement costs of tax laws rather than focus on the misbehavior of some Internal Revenue Service agents, bad as that has been. This will require replacing existing taxes with a clear, simple tax structure that taxes all income once, and only once, and at a reasonable level.

A TAX SYSTEM FOR A DYNAMIC, FREE AMERICA

To tell the people what price they must pay for governmental activities and services, the tax system must have certain attributes. Most important, taxes must be visible to the people who pay them. If we aren't aware of paying a tax or of how much we pay, clearly the tax isn't telling us anything about what we must pay for government.

We believe that tax reform should follow a series of principles aimed at keeping taxes low, fair, and nondisruptive to economic decision-making. Any tax reform should include these qualifications:

* All taxpayers should be fully informed on exactly what is being taxed, how they are being taxed, and what their true tax liability is.

* Taxes must be made as visible to the taxpayer as possible ("hidden" taxes mask the true cost of government).

* The tax system must explicitly treat all individuals equally under the law. (Deliberate differentiations in tax liabilities based on the sources or uses of income should be avoided, except in the case of capital gains. Capital gains is covered under the principle of not taxing income more than once. The capital gains tax is a double tax on the same stream of income.)

* The tax system should provide the same treatment for similar economic actions and transactions and should not be based on the attributes of the taxpayer.

* Multiple layers of taxation must be avoided and income taxed once and only once.

* Real people, not corporations, pay taxes, not withstanding that few of them are aware they actually shoulder the burden; therefore, eliminate the corporate tax and integrate it with the personal tax.

* The tax system must be simple (complexity makes the system expensive, punitive, and inefficient--a loss to the economy).

* The tax system must be neutral in economic decision-making--it should not interfere with the free economic choices of individuals, households, or businesses.

* A low tax rate must be applied across the board, thus creating the fewest distortions to the economy (high marginal tax rates damage economic growth by reducing incentives to work, save, and invest).

* No retroactive tax changes must be made, as these sap public confidence in planning for the future.

* The tax code must not impede the free flow of goods, services, and capital across borders.

Toward a Flatter, Fairer, Simpler lax

There are presently several major alternative tax restructuring plans being considered by Congress. Although many of these plans are strikingly different, they share one important attribute: The reforms highlight the need to replace the existing system with one that is more fair, efficient, simple, and pro-growth.

They are:

Armey/Shelby Flat Tax--Majority Leader Dick Armey and Senator Richard Shelby have introduced a plan based on a 20 percent flat rate in 1996 and a 17 percent flat rate thereafter. The plan has an individual wage tax and a business tax imposed on all forms of business that allows the deduction of "business inputs" but not taxes, interest, and dividends.

Domenici/Nunn--Senators Pete Domenici and Sam Nunn have introduced a bill that proposes a fairly comprehensive consumption tax base but retains a reduced mortgage interest deduction, a charitable deduction, and exacts a deduction for higher education expenses.

Lugar National Sales Tax--Senator Richard Lugar has proposed that the present income tax system be replaced with a national sales tax. The Lugar proposal is aimed at addressing the basic problems afflicting the U.S. economy, as well as liberating Americans from the intrusive burden of the income tax.

Specter Flat Tax---Senator Arlen Specter introduced the Specter flat tax proposal in Congress in early 1995. The proposal seeks to achieve the four fundamental goals of tax reform: growth, fairness, simplicity, and deficit neutral.

Rep. Bill Archer--Bill Archer, chairman, House Ways and Means Committee, advocates pulling the income tax out by its roots and throwing it away so it can never grow back. Chairman Archer's guiding principle is to choose a new tax that provides the greatest, most productive boost for the overall economy and contains five attributes: simplicity and freedom, saving incentives, international competitiveness, fairness, and it addresses the underground economy.

Which proposal will finally be adopted remains to be seen. However, if we do it right, if the rates are low enough, and if we stop double and triple taxing, we will have the support of the American people.

In addition to limiting taxes so that they no longer penalize investment and families, we must overhaul the entire income tax structure. It must be clear and fair, and reflect the true and full costs of government. The current system's complicated loopholes hide from taxpayers the full burden of the tax system.

We must move toward comprehensive reform that will keep the government from penalizing people for investing, saving, and working hard. That remedy would be a simpler, flatter tax system for all Americans. By eliminating tax brackets and tax loopholes we can encourage hard work and investment. We can foster economic growth and help families and individuals climb the ladder of success.

With such a system, taxpayers will know that they are bearing only their fair share of the tax burden. It also will bring about extensive public savings on inefficient tax subsidies, not to mention the time and trouble involved in complicated disputes with the Internal Revenue Service. With loopholes eliminated, entrepreneurs will be able to concentrate on making the best product at the best price. This increased efficiency will produce savings for consumers, profits for entrepreneurs, and employment opportunities for workers.

Tax and Spending Limitations

We must keep in mind that any lasting and effective tax reform must begin with tax limitation and spending control. Government spending increases the pressure for higher taxes. This in turn renders tax reform more difficult. For example, the government often speaks of the "cost" of reducing taxes. To index capital gains taxes for inflation would "cost" the government several billion dollars a year, on its reckoning. But tax cuts in fact cost nothing, because they allow people to keep what they own in the first place. Therefore, in addition to a Balanced Budget Amendment to the Constitution, Congress should enact a supermajority requirement to raise taxes. By instituting spending limitations that put the budget on a glide path toward balance by the year 2002, we will reduce the demand for tax revenues. By providing tax relief as a matter of principle, we will increase the incentive for government to economize. By taking more money out of the hands of government officials and letting it stay with workers and consumers who earned it, we will increase the funds available for commerce and investment.

Balancing the budget can work in tandem with our other goals to lower the burden of government on the American economy and so spur growth and prosperity for all Americans.

Copyright © 1996 National Policy Forum. All rights reserved.

Full Text Reviews
Appeared in Publishers Weekly on 1996-03-18:
Chairman of the Republican National Committee, Barbour also heads the National Policy Forum, a Republican think tank that recently sponsored a series of Washington, D.C.-based forums bringing together congressional and industry leaders, policy experts and ordinary citizens. Those conferences form the basis for this Republican policy blueprint, a set of grassroots-influenced recommendations that contain few surprises but could serve as a springboard for debate in the upcoming presidential election. Proposals include a sharp scaling down of welfare, with time limits on eligibility; a "simpler, flatter" tax system that provides relief to families, eliminates corporate taxes and banishes or reduces the capital gains tax; less federal regulation in the workplace; and tax-free medical savings accounts as an incentive to workers to control their own health care expenditures. Charging the Clinton administration with abdicating America's global leadership role, this manifesto advocates strong U.S. support for NATO, beefed-up counterterrorism and counterinsurgency operations and a foreign aid policy that makes U.S. strategic interests paramount. (Apr.)
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